財經事務及庫務局

FINANCIAL SERVICES AND THE
TREASURY BUREAU

香港添馬添美道2號
政府總部24樓

24/F, Central Government Offices,
2 Tim Mei Avenue,Tamar, Hong Kong

Policy Statement on Development of Virtual Assets in Hong Kong
This statement issued by the Financial Services and the Treasury Bureau (“FSTB”)
sets out the Government’s policy stance and approach towards developing a vibrantsector and ecosystem for Virtual Assets (“VA”) in Hong Kong.
Our vision and approach
2. As an international financial centre, Hong Kong is open and inclusive towards
the global community of innovators engaging in VA businesses. We applaud theachievements of the community in pioneering distributed ledger technologies(“DLT”), and in developing new financial innovations aiming to be more cost-efficient,inclusive, agile, and future-proof. We recognise VA is here to stay, given how it has
attracted attention of global investors and is increasingly viewed as a conduit for
financial innovations, not to mention the future opportunities that will be opened up
as VA moves into the areas of Web 3.0 and the Metaverse. The Government, inconjunction with the financial regulators, are working towards providing a facilitating
environment for promoting sustainable and responsible development of the VA
sector in Hong Kong. We are ready to calibrate our legal and regulatory regime aspart of our effort to provide the aforesaid facilitating environment having regard to
the evolving nature and innovative approach of VA.
3. We recognise the potential of DLT and Web 3.0 to become the future offinance and commerce, and under proper regulation they are expected to enhance
efficiency and transparency, which in turn will reduce or resolve existing frictions1

across clearing, settlement and payments. Hong Kong shows signs of a vibrant VA
ecosystem, as demonstrated by NFT issuance in our market, presence of Metaverse
developers, and use of DLT in trade finance etc. Further opportunities can be realised
if we cast our sight further on more use cases, e.g. trading arts and collectibles,
tokenising vintage goods, or in the case of financial innovations, tokenising a wide
spectrum of products such as debt securities.
4. Similar to the development and adoption of other technologies that came
before, pathway to the above vision may not be straightforward as it involves
considerable risks in uncharted waters. We will adopt the “same activity, same risks,same regulation” principle, and put in place timely and necessary guardrails, so that
VA innovations can thrive in Hong Kong in a sustainable manner, while actual andpotential risks on financial stability, consumer protection, as well as money
laundering and terrorists financing can be mitigated and managed in line withinternational standards. Given the status of Hong Kong as an international financial
centre and the global reach of VA, we also need to monitor the international
regulatory developments closely, which are gathering pace and momentum, and takethem into account in the development of our regulatory system.
Regulations
5. Over the past few years the Government and the regulators have developed
a comprehensive framework for the regulation of VA activities, under the “sameactivity, same risks, same regulation” principle. A regulatory regime has beenlaunched to license VA Exchanges using an “opt-in” approach, and on the assetmanagement front guidance has been issued on management of VA funds anddiscretionary accounts. Also, banks and financial institutions have been provided
guidance on distribution of VA-related products, dealing in or advising on VAs. Thesecomprehensive regulatory regimes have been well received by the industry. With2

consistency, predictability and clarity gradually established by our regulatory
framework, we have a solid foundation to further embrace financial innovations andtechnology development brought by the rapid development of VA globally.
6. To take the aforesaid comprehensive regulatory framework further forward,
our latest effort is to put together a licensing regime for VA Service Providers. The
new regime will align requirements for VA Exchanges in terms of anti-money
laundering, counter-terrorist financing (“AML/CTF”), and investor protection to thosecurrently applicable to traditional financial institutions, hence offering licensed VA
Exchanges the status and credibility to access a wider net of investors in the Hong
Kong market. An additional benefit is that financial intermediaries and banks will beable to partner with licensed VA Exchanges when offering clients with VA dealing
services, provided that relevant regulatory conditions are met. From the perspectiveof VA Exchanges, a licensing status will offer them the potential to open new
distribution channels in Hong Kong, tapping into our sizable asset and wealthmanagement market which is worth over US$4.5 trillion. And VA Exchanges can also
further tap into our established financial markets through the connectivity withtraditional financial institutions. As we step up our preparatory work for the newlicensing regime, we are ready to engage with global VA Exchanges and invite themto set foot in Hong Kong for new business opportunities.
Investors’ exposure to VA
7. We recognise the increasing acceptance of VA as a vehicle for investment
allocation by global investors, be they institutional or individual. While the Securities
and Futures Commission (“SFC”) will be conducting a public consultation on how
retail investors may be given a suitable degree of access to VA under the new licensing
regime, we note that retail investors in other markets have also been given exposure
to VA via VA-related products such as Exchange Traded Products. Hong Kong is3

therefore open to the possibility of having Exchange Traded Funds (“ETFs”) on VA in
Hong Kong, and soon the SFC will publish a circular on this. Having these products
launched in Hong Kong will provide the connectivity between VA players andtraditional financial institutions, offering investors with well-designed products,
hence promoting the overall growth of the sector in our market. That said, we will
be careful and cautious about the risks to retail investors, and therefore will enhanceinvestor education and ensure that suitable regulatory arrangements are in place.
Property rights of tokenised assets
8. We recognise VA have unique characteristics different from traditional assets,
and their features may not fit squarely into the current private property law
categories or definitions in Hong Kong. To facilitate adoption and enhance investor
protection, the Government is open to future review on property rights for tokenised
assets and the legality of smart contracts, so as to provide a solid legal foundation for
their development.
Stablecoins
9. Another key area of focus is stablecoins. On the basis of their purported
certainty in terms of maintaining value stability and increasing use cases e.g. as ameans of exchange between cryptocurrency and fiat currency, stablecoins are seen
to have a growing potential for significant interconnectedness with the traditional
financial markets e.g. in the payment system. With lessons learnt from recent crisisin the VA market (Crypto Winter), international consensus is to put in placeappropriate regulations on aspects such as governance, stabilisation and redemption
mechanisms of stablecoins. In this regard and early this year before the Crypto
Winter, the Hong Kong Monetary Authority (“HKMA”) already issued a discussion
paper on the subject, seeking feedback on putting in place a risk-based,4

proportionate, and agile regime for regulating activities relating to payment-related
stablecoins. Consultation outcome and next steps will be announced in due course.
Our pilot projects
10. The Government and the regulators are exploring the following pilot
projects to test the technological benefits brought by Virtual Assets and their furtherapplications in the financial markets. These demonstrate our commitment anddetermination to explore financial innovations together with the global VAcommunity.

(a) NFT issuance for Hong Kong Fintech Week (“HKFTW”) 2022: A proof-of-concept
project on our part to engage the Fintech and Web3 community;(b) Green bond tokenisation: Tokenising Government Green bond issuance forsubscription by institutional investors; and(c) e-HKD: The potential “backbone” and anchor bridging legal tender and VA,
offering price stability and confidence needed to empower more innovations.

Further details on the above pilot projects can be found in the Annex.
Conclusion and way forward
11. With Hong Kong’s world class financial infrastructure, legal and regulatory
regime, we aim to promote the sustainable development of financial services acrossthe whole VA value chain, covering issuance of VA, tokenisation, trading andsettlement platforms, financing and asset management, and custody etc.

TheGovernment is prepared to embrace the future of finance and commerce, supporting
the underlying technologies of VA and promoting their benefits in our market, and5

we welcome the clustering of Fintech and VA community and talents in Hong Kong.
The vision presented in this policy statement will be achieved by facilitating policies,
comprehensive and balanced regulations, risk-based guardrails, as well as our pilot
projects. The Government sincerely invites the global VA community to join handswith us and leverage on Hong Kong’s status as an international financial centre torealise the potential of financial innovations under a clear, agile and facilitating
regulatory environment, adhering to best international standards and practices.

31 October 2022

Financial Services and the Treasury Bureau
The Government of the Hong Kong Special Administrative Region

6Annex: Pilot projects to test the technological benefits brought by Virtual Assets
and their further applications in the financial markets
NFT issuance
1. Non-fungible token (“NFT”) has proven itself to be a new form of digitalownership in recent years, and it has been harnessed by art creators and businesses
around the world to create and engage with communities sharing common beliefsand goals. The FSTB, together with our investment promotion department InvestHK,have conducted a pilot project to promote the usage of NFT in our annual flagshipevent – the Hong Kong Fintech Week (“HKFTW”) in 2022.
2. The NFT will serve as a proof of attendance for attendees of the HKFTW,
offering them a digital badge and memento using Blockchain technology incelebration of their participation. The NFT is user and beginner-friendly, as it can be
stored in Crypto Wallets directly, or for those who are new to NFTs and yet to have awallet, it can also be stored as a “NFT-to-be” using an email address and be ready forconversion into a NFT later. The NFT will be linked with exclusive experience at theHKFTW, offering holders a chance to create their own Augmented Reality (“AR”)
avatar to experience the Metaverse.
3. The Government sees the NFT issuance as a proof-of-concept project on ourpart to engage the Fintech and Web3 community, and demonstrate our commitment
in innovation. Benefits will be offered to holders of the NFT, including special
discount on tickets for the HKFTW next year, and exclusive early announcements forparticipation in our other Fintech events including the Fintech Proof-of-Concept
Subsidy Scheme sharing sessions, Fintech training programmes and other potential
fast track and incubation programmes.

7

Green bond tokenisation
4. Bond tokenisation holds the potential to enhance the efficiency and reducethe cost in bond issuance and settlement, and could open the market to a broader
investor base. Following the successful completion of Project Genesis by the HKMA
and the Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre,
which developed two prototypes (utilising permissioned and permissionless
blockchain respectively) to concept-test the use of distributed ledger technology(DLT) to streamline green bond retail issuance, the HKMA is working on a pilot project
tokenising Government Green bond issuance for subscription by institutional
investors. The objective is to test out the financial infrastructure and the legal andregulatory environment in Hong Kong for the use of DLT throughout the bondlifecycle (covering issuance, settlement, asset servicing, secondary trading andredemption) and to serve as a guide for similar future issuances by marketparticipants. Further details will be announced to inform the industry and the public
about progress of the project.
e-HKD
5. VA and Cryptocurrencies, despite their technological innovations, cannot
serve as legal tender in Hong Kong as they are not by law regarded as valid and legalmeans of payment to adequately and effectively fulfil payment obligations. While weenvision VA and Cryptocurrencies can still empower many financial innovations as
highlighted in the earlier parts of this statement, the Government and the regulator
see a space to fill in terms of exploring possible launch of our retail Central Bank
Digital Currency (“rCBDC”) – the eHKD.
6. Based on earlier market consultations conducted by the HKMA, respondents
are supportive of the e-HKD initiative and believe it has the potential to make8

payments more efficient and support the development of Hong Kong’s digital
economy. The HKMA will pave the way for a possible launch of e-HKD via a “threerail approach”, exploring by phases 1) the technology and legal foundations; 2) use
cases and designs; and 3) the timeline for launching e-HKD. To the global VAcommunity, we believe the significance of e-HKD lies in its potential to serve as the“backbone” and anchor bridging legal tender and VA, hence offering the pricestability and confidence needed to empower more innovations around Security
Token Offerings based on different types of assets.

Ends9